Mainland LCD television prices dive

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China's television makers are slashing prices on liquid crystal display (LCD) models in a bid to foster demand for a product that most mainland consumers cannot yet afford.

Last week, industry leaders such as TCL International Holdings and Skyworth Digital Holdings reduced prices on LCD TVs by an average of 20 per cent.

The move reminds some observers of the price war among makers of conventional cathode-ray-tube (CRT) televisions in 2001 that left the entire industry, except market leaders TCL International Holdings and Sichuan Changhong Electric, floundering in red ink.

But sector analysts said the latest price reductions were more of a promotional campaign rather than a price war.

'In 2001 there was a glut of CRT TVs and TV makers were dumping them in a desperate attempt to get cash,' said Niki Chu, an analyst with Sun Hung Kai Research.

Some mainland television makers even obtained subsidies from provincial governments at the time so that they could sell below cost and stay in business.

This time there is no market glut. Output and demand for LCD TVs remain modest, although manufacturing capacity is growing steadily.

'The mainland market is still too small to justify any meaningful price war,' Ms Chu said, noting that an industry-wide price reduction on LCD televisions was a rational move to kick-start demand.

In a country where most people earn an average monthly salary of less than a thousand yuan, lower prices are fundamental to establishing the product.

LCD televisions still sell for about 10,000 yuan to 20,000 yuan - more for the fanciest models - or six times to ten times the prices of CRT units. LCD televisions first appeared on the mainland market in 2002. Sales last year totalled between 30,000 and 40,000 units.

LCD production is dominated by Sino-foreign joint ventures, especially those with Taiwanese and South Korean investment.

Of the total national output of one million LCD televisions last year, 800,000 of them were exported, according to a report by world trade facilitator Global Sources. The report forecasts that the country will produce 2.5 million LCD televisions this year and export 2.3 million units.

Analysts say local technology does not yet meet the standards required for international sales.

'Although the domestic and foreign TV makers source the same LCD panels from South Korea and Taiwan, the domestic products give less steady pictures,' Ms Chu said.

Hence local manufacturers are focusing on the domestic market.

TPV Technology, the world's No2 computer monitor maker, which is diversifying into LCD televisions, said local demand would pick up exponentially when selling prices fell below a threshold equivalent to 2.5 times those of CRT televisions.

Falling costs of LCD panels have given manufacturers more room to manoeuvre. Within a few years, analysts say, LCD televisions should be much cheaper to produce than those with CRTs.

'Expanded LCD panel production capacity in South Korea and Taiwan has sliced 10 per cent to 20 per cent off the cost of the key component, which accounts for between 50 per cent and 80 per cent of an LCD TV's material cost,' said a Skyworth spokesman. Sichuan Changhong Electric estimated national sales of LCD units to be at about 100,000 this year, or just a fraction of the projected 35 million sales for all televisions.

LCD televisions still account for a tiny fraction of manufacturers' sales - less than 1 per cent for TCL and Skyworth, and less than 5 per cent for Sichuan Changhong.

Skyworth sold 10,000 LCD televisions last year, or about 25 per cent of those sold in the domestic market. TCL sold only 1,000.